A Joint Energy and Transmission Rights Auction on a Network with Nonlinear Constraints: Design, Pricing and Revenue Adequacy

The forward and real-time (spot) auction markets operated by independent system operators (ISOs) allow for trade in multiple wholesale electricity products, differentiated by time and location on the transmission network. This chapter presents a general auction model that implements key features of the ISO markets, including definition of several market products, the rules for joint auctioning of the products in a sequence of forward and spot markets, the rules for financial settlement of those products, and the requirements to ensure revenue adequacy of the auctioneer. The model formulation is focused on a joint energy and transmission rights auction (JETRA; henceforth, the ‘auction model’ or ‘auction’), along with a non-linear representation of the transmission network constraints. However, the formulation can be extended, in some cases with modification, to other market products. Our earlier paper (O’Neill et al. 2002) explored properties of this auction with linear transmission constraints.